2008-2009 wheat prices a reverse of 2007-2008 prices

The 2007-2008 wheat marketing year runs from June 2007 through May 2008. The following article is a review of what the market offered for 2007 harvested wheat and speculation on what the market will offer for 2008 harvested wheat.

In early January 2007, the Kansas City Board of Trade (KCBT) March contract price was about $5 and Oklahoma and Texas cash wheat prices were near $4.50. Corn delivered to feed mills cost about $4.50.

Wheat 2006-2007 marketing-year wheat ending stocks were projected to be 437 million bushels compared to a five-year average of 521 million bushels. United States 2007 wheat production was projected to be about 2.3 billion bushels compared to a five-year average of 2.0 billion bushels.

The market chatter was about corn and how corn prices would support wheat prices during the 2007-2008 marketing year. The big questions were, “How many acres of corn will be planted? Will enough corn be produced to meet 2007-2008 demand? And, how much wheat would be fed?” Corn was the driving force for the 2007 wheat crop price until April 9.

In early April, the wheat market was about 30 cents lower than in early January and the Chicago Board of Trade (CBT) corn contract price was providing a floor for the KCBT July wheat contract price. Then on April 9-10, there was a hard freeze over much of the U.S. winter wheat area. Yield potential for the 2007 U.S. winter wheat crop was reduced.

KCBT July wheat contract price went from about $4.35 to over $5. Wheat prices were no longer dependent on corn prices.

Rain prevented most Oklahoma and southern Kansas producers from harvesting their wheat. United States wheat production went from January's expected 2.3 billion bushels to 2.0 billion bushels.

During June's weather-delayed harvest, KCBT wheat contract prices declined from $5 to $6 and cash wheat prices went from $4.75 to $5.50. The CBT corn contract price went from about $4.20 to $3.30. Corn production estimates had increased from 12.5 billion bushels to over 13 billion bushels.

The April freeze, disease, and poor harvest conditions caused wheat prices to increase from the upper $4 level to near $6. Then poor harvest weather conditions in most of the foreign wheat-producing countries caused wheat prices to increase from $6 to nearly $10. World wheat production was reduced from 22.7 billion bushels to 22.1 billion bushels.

Current cash wheat prices in Oklahoma and the Texas panhandle are mostly above $9. The KCBT July 2008 wheat contract price is $8.35. Using a minus 55-cent basis, the market is offering about $7.80 for June 2008 delivered wheat.

Poor growing and harvesting weather conditions worldwide resulted in record high 2007-2008 marketing year wheat prices.

Based on the stocks-to-use ratio (ending stocks divided by use), world and U.S. wheat stocks are at record lows. Most major flour mills have purchased enough wheat to meet needs until early spring. Wheat users must buy additional wheat to meet needs until most of the world's wheat is harvested in the August/September time period. The next exportable wheat to be harvested is the U.S. winter wheat crop.

This nearly guarantees a June wheat price above $7. Irrespective of how large the 2007 winter wheat crop is, wheat harvested in Texas, Oklahoma and southern Kansas is needed by U.S. flour mills and exports.

An above average U.S. winter wheat crop could result in wheat prices declining in July and August. An above average foreign wheat crop could cause wheat prices to decline below $7 and possibly below $6 by October.

Above average world wheat production will cause wheat prices to decline during the 2007-2008 marketing year. Below average wheat production will result in wheat prices remaining above $9 and possibly $10.